Despite challenging economic conditions and regulatory uncertainty, global executives believe that the climate change agenda will significantly impact business performance and strategy over the next few years according to a new survey by Ernst & Young : Action amid uncertainty: the business response to climate change. Three hundred global corporate executives from 16 countries with at least US$1b in annual revenue participated in the survey conducted during spring 2010.

The survey found that corporate executives expect to make significant investments to deliver both cost savings and revenue generation opportunities relating to climate change. Seventy percent plan to increase spending on climate change initiatives between 2010 and 2012. Nearly half plan to spend between 0.5% to more than 5% of their revenue on climate change initiatives. For a US$1b company, this represents an anticipated spend of US$5 million to US$50 million annually.

Steve Starbuck, Americas Climate Change and Sustainability Services Leader at Ernst & Young LLP, says: "Corporate leaders are not letting the lack of global standards and regulations slow their climate change investments. Other market drivers, such as equity analysts’ growing interest in climate change performance, are prompting a further need to act and be more transparent.”

Climate change investments take shape
Consumers and equity analysts are two of the factors driving this investment trend. Corporate climate change activities are being driven by evolving customer demands according to 89% of survey respondents. Some sectors, including automotive, consumer products, and technology, unanimously agree that changing customer preferences have created significant drivers for action and innovation. Meanwhile, equity analysts are increasingly linking the business response to climate change and company valuations. Over 40% of the senior executives surveyed believe that equity analysts currently include climate change-related factors in company valuations.

Energy efficiency is at the top of the list as 82% of respondents plan to invest in this space over the next 12 months. About half of the respondents confirm new ventures, such as spin-offs or start-up businesses, as an area for focus. Additionally, 65% of executives intend to focus investments on new products and services.

Sudipta Das, India Climate Change and Sustainability Services Leader at Ernst & Young explains: “Executives must collaborate across internal functions to optimize investment decisions, whether they lead to new revenue opportunities, through the Clean Development Mechanism, for example, or decrease costs through a company’s operational activity, such as the supply chain.”

Close watch on government climate change policy
Ninety four percent of respondents see national policies as important or very important in shaping their climate change strategies, although 81% recognize the importance of global or international policies.

Dr. Lorraine Stephenson, Ernst & Young Partner and Oceania Climate Change Leader says: “Keeping abreast of national climate change legislation and business incentives across jurisdictions will prove challenging, but necessary for many businesses, even those that do not traditionally regard themselves as multi-national due to the connectivity of supply chains and markets. Businesses will need to prioritize investments to capture opportunities and mitigate risks in response to the growing number of climate change policies, in developing and developed countries, since the December Copenhagen meeting."

Starbuck concludes: “Prudent executives recognize the wealth of opportunities to make money, save money and respond to stakeholders’ expectations by integrating their climate change response into business plans and sustainability strategies.”

Other key findings from the survey include:
- In the developing economies of China and India, executives rank product development as the top challenge to achieving their goals, 97% and 72% respectively. Respondents in Australia, Canada, US, Japan, Germany and France indicate that regulatory and compliance issues present primary challenges in the next two years.
- Approximately 66% of respondents are discussing climate change programs with their suppliers and 36% of respondents are already working directly with these stakeholders to decrease the carbon in their supply chains.
- Transparent reporting is gaining momentum, as 64% of respondents report greenhouse gas data in an annual corporate social responsibility or sustainability report. Of the organizations that say they report, 62% verify their data through an independent, third-party.

About this report
For this study, Ernst & Young commissioned Verdantix — an independent analyst research organization focused on sustainable business — to conduct a survey of 300 global executives.

Respondents were drawn from across 16 countries and 18 industry sectors. All of the executives interviewed work for companies with an annual global revenue in excess of US$1 billion.

Copyright Finyear (c)2006-2016 - Finance & Innovation all the Year - 2016. ISSN 2105-0872. All rights reserved.
Reproduction in whole or in part in any form or medium without express written permission of Finyear is prohibited.